The growing integration of technological solutions into everyday life around the globe has seen Nigeria as well as the rest of Africa increasingly incorporate technology as a strategy to addressing the many challenges that face the continent.
Young people on the continent getting into the tech space often see it as a means of addressing lack of jobs after school, breaking poverty circles and positioning themselves as the future talents for the digital age. Over time, the space has attracted some of the best minds who have built companies solving local problems and have in turn caught the attention of investors.
In terms of funding, 2018 has been a most defining year for most tech entrepreneurs. More than any other time, tech businesses have received massive cash inflows in this year.
The first half of the year saw Cellulant, a fintech company co-founded by a Nigerian, Bola Akinboro, secure $47.5 million to make it the most funding received by a tech and a fintech startup on the African continent in that period.
First quarter was very eventful with tech companies like Terragon Group and Rensource receiving $5 million and $3.5 million in equity. O-Mobile Multimedia Limited and Lidya brought in $10 million $6.9 million respectively in the second quarter. Paystack, Mines and Paga with $8 million, $13 million and $10 million led the third quarter.
As remarkable as the investments may seem, about 99.9 per cent of the funds were led by foreign investors including TLcom, Village Capital, Y Combinator, Amaya Capital Partners, Omidyar Network, The Rise Fund, Endeavor Catalyst, Satya Capital, among many others. Local investments into startups are at most abysmal.
Charles Ojei founder of Hybr Group and board member of Village Capital say that the nature of investments in tech is something that traditionally a lot of investors in Nigeria are not used to.
“These are riskier investments: investing in ideas and early stage companies,” he began, “It is not something that we are traditionally very used to. Secondly, it is mostly about technology; a lot of people might not understand that. The people that understand it are coming from outside. They have lots of capital. They have also been doing for decades so they understand exactly how it works. Africa is emerging and they are cashing in.”
In essence, tech investments are generally driven by sector expertise, which as a result lends itself to foreign investors who have experience in the sector from their home markets.
Rahmon Ojukotola, director of StartCredit and advisory board member of Florida Schools group, told BusinessDay that one of the implications is when the naira depreciates, it makes it more likely for the foreign investors to withdraw capital from either a successful or unsuccessful business as it adversely affects their return on investment. An example is Efritin.com.
“Foreign capital is generally more short term than domestic which increases pressure on the tech firm o unsustainably grow fast to meet the investors timeline,” he said. “Investment in Nigeria from abroad is generally seen as non-core to help diversify their portfolio and due to the inherent higher risks in the country makes the capital highly elastic and subject to flight.”
Ojei also told BusinessDay why it matters.
“Like every economic story, these tech companies eventually are assets and if your assets are being owned more and more by foreign parties, it means you are giving away part of your future,” he told BusinessDay in an interview. “The more local investments that we can have the more we can retain some of these assets in this country. Foreign investments are not bad, but we have to find the balance.”
Abasiama Idaresit, CEO and founder of Wild Fusion Group, in a recent article on BusinessDay, also pointed out that a knowledge economy wholly owned by foreign companies and stakeholders, means the country’s intellectual capital, proprietary assets, data will be domiciled offshore, solutions to local problems will be owned and controlled by foreign companies.
“Tax on revenue in country will be paid to foreign government while profit will be repatriated offshore,” he wrote. “Whoever, owns technology determines who has access and how the politics of the technology could evolve.”
The lopsided direction of funding has also impacted some of the tech solutions in that most are not localised. In most cases, the localised solutions are not being funded because foreign investors do not always see them as viable. It is partly responsible for why startups in fintech secure the chunk of funding – mostly in huge equity investments – while those in health or education or energy make do with the ‘change’ or grants.
CK Japheth, founder of Innovation Village, a tech hub in Uganda told BusinessDay that it is not only a Nigeria problem. Most African startups are swayed by the success of Silicon Valley and the promise of funding from foreign investors that they end up building solutions that are disconnected from local realities.
“For every startup that has managed successfully to break into that market (Silicon Valley), there are millions that have died on the road,” Japheth said.
To increase the input of local investors and attract new ones, Japheth believes a lot depends on education.
“The issue is Nigerian investors won’t invest in a sector, they do not understand such as blockchain,” Ojukotola adds. “The way it can be mitigated is over time, when Nigerians gain experience in the sectors.”
